Christine Poole is CEO and managing director at GlobeInvest Capital Management. Her focus is North American large caps.
Royal Bank (RY.TO)
Royal Bank's leading domestic lending franchise, dominant capital markets position and growing wealth management business contribute to consistent financial results. While RY paid a full price for City National (expected to close in calendar Q4/15), the acquisition enhances RY's presence in two attractive client segments: high net worth and commercial banking. Geographically, City National operates in the top three U.S. markets (New York, Los Angeles and San Francisco), where the highest number of high net worth households are located. Royal Bank's dividends are expected to grow at a similar pace to earnings growth. The stock provides investors with a current dividend yield of 4.0 per cent
Walt Disney (DIS.N)
Disney is a media conglomerate and premier content provider, comprised of Cable Networks (54 per cent of operating income), Parks & Resorts (21 per cent), Studio Entertainment (13 per cent) and Consumer Products (12 per cent). Its strong global brand portfolio including Disney, ESPN, Pixar, Marvel, and Lucas Film supports a multi-platform strategy to exploit content across Disney's business segments. Investments in Parks & Resorts is driving stronger traffic and spend, positive for segment margins. Capital spending is expected to moderate following the opening of Shanghai Disney in the spring of 2016, leading to acceleration in free cash flow. Disney provides a dividend yield of 1.2 per cent.
Wells Fargo (WFC.N)
Wells Fargo is a high quality, financial services company with about an 11 per cent national deposit market share. Its business mix is balanced between net interest/spread income representing 52 per cent of revenues and non-interest income at 48 per cent of revenues. WFC is the leading originator of U.S. residential mortgages with a 29 per cent share of the residential mortgage market as well as the top auto, small business and middle market commercial lender in the nation. WFC delivers consistent, above average long term profitability, with a keen focus on effective capital allocation, credit quality and low operating expenses. WFC currently offers a dividend yield of 2.6 per cent.
Past Picks: August 19, 2014
Visa (V.N) *Stock split on March 19, 2015 - 4 for 1*
Then: $215.00; Now: $73.36; +36.48%; Total return: +37.23%
United Technologies (UTX.N)
Then: $108.56; Now: $98.61; -9.17%; Total return: -7.68 %
Then: $40.58; Now: $47.43; +16.88%; Total return: +20.82%
Total Return Average: +16.79%
The U.S. economy is growing, albeit at a subdued pace, posting GDP growth of 2.3 per cent in Q2/15. The labour market is firm with the unemployment rate at 5.3 per cent, the lowest since April 2008, the housing industry continues on an upward trend, consumer sentiment is healthy and manufacturing & services activity is expanding. Equity markets, however, are range bound, with the spectre of rising interest rates and collapse in commodity prices dampening investor enthusiasm.
So far, almost 90 per cent of the S&P 500 constituents have reported Q2/15 earnings per share (EPS). Actual year-over-year EPS growth was up 1.5 per cent versus expectations of down 3.7 per cent. Excluding energy, actual EPS growth was up 10.2 per cent. In addition, the resurgent U.S. dollar is restraining profit growth for U.S.-based multinationals. Comparisons should ease into 2016.
Economic data and indicators suggest recessionary risks are low in the U.S. Equity markets should grind higher, driven by corporate profit growth. The Canadian economy is expected to improve in the latter half when the positive impact of a low Canadian dollar is felt. Recent jobs data are also supportive of a rebound in economic activity later in the year.
The U.S. Federal Reserve is on track to raise interest rates sometime this fall. The pace of policy normalization is expected to be gradual, measured and well-telecast.